July 3, 2013 –
New guidelines amend Truth in Lending Act

CFPB releases compliance guides on loan origination, mortgage servicing

The role played by loan originators and mortgage servicers in the recent financial crisis sparked a breadth of criticism with regard to certain business practices associated with these industries. Specifically, lawmakers and regulators were concerned with:

1. incentives that loan originators have to steer consumers into more expensive loans in order to increase their own compensation, and
2. unfair mortgage servicing practices.

In the wake of these concerns, Congress has imposed many new requirements on these two industries via the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

To implement the mandates imposed by the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is:

• amending Regulation Z, which implements the Truth in Lending Act and the official interpretation to the regulation, which interprets the requirements of Regulation Z;
• amending Regulation X, which implements the Real Estate Settlement Procedures Act of 1974, and;
• implementing a commentary that sets forth an official interpretation to the regulation.

The CFPB has issued small entity compliance guides for the loan originator and mortgage servicing rules that were finalized in January and take effect January 10, 2014 .

The guides highlight issues that small loan originators, creditors, their assignees and servicers of mortgage loans will have to consider when implementing the rules. The guides also meet the requirements of Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, which requires the CFPB to issue a small entity compliance guide to help small businesses comply with these new regulations.

The loan originating rules clarify a number of issues under existing loan originator compensation rules and implement the Dodd-Frank Act requirements concerning loan originator qualifications that build upon existing requirements under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, as well as requirements regarding training, screening and compensation practices.

The mortgage servicing rules require servicers to establish certain policies, procedures and requirements, including the designation of personnel to assist consumers who fall behind in their mortgage payments. The rules also require servicers to contact consumers soon after delinquency and work with them to be considered for applicable loss mitigation options.

The CFPB has indicated it anticipates most loan originators will have to make affirmative changes to their business practices in order to comply with the loan originating rules.

Further, servicers will have to review their processes, software, contracts or other aspects of their business operations to identify any changes needed to comply with the mortgage servicing rules.

Changes related to the loan originating rules and/or mortgage servicing rules will take careful planning, time and resources to implement.

For more information on the loan originating rules and/or the mortgage servicing rules, please contact Gunster’s banking and financial services attorneys.

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